We recently looked at Goldman Sachs’ 42 stocks with the highest consensus returns, or the highest consensus ROE. In this article, we’ll take a look at where Citizen Financial Group (NYSE:CFG) ranks on the list.
As the fourth quarter of 2024 begins to settle down, the narrative around stocks on Wall Street is starting to change. This is not surprising since the start of the Federal Reserve’s interest rate cycle will change America’s economic landscape. These will naturally have an impact on companies, and along with financials, the outlook for cyclical stocks should also improve.
For example, consider two reports by investment bank Morgan Stanley. One of the announcements, released before the rate cut, addressed the bank’s thoughts on the stock market and the U.S. economy in September. The other one took place in October after the interest rate cut. In its September report, MS laid out three scenarios for the performance of its flagship S&P index for the rest of the year. In the best-case scenario, the index is expected to close at 5,650 points in the near term, while in the “attractive” and “fair” scenarios, it is projected to close at 5,200 and 5,350 points, respectively. Still, with a recent reading of 5,764, the market has outperformed even the best-case scenario.
The bank also shared that US inflation is finally coming down. This fact is explained through S&P’s second quarter results. In fact, according to MS, changes in inflation trends have pushed the index to its highest in the past 10 years, taking into account sales and profit surprises. The data shows that when inflation spiked in the fourth quarter of 2022, companies struggled with costs and were in the lowest quintile for EPS (net of unexpected pluses and minuses). This was despite being in the 70th percentile for positive and negative sales surprises during the same period. However, now that inflation has declined, Q2 earnings season data shows that EPS surprises were in the top quintile (over 80%), while earnings surprises were around 35%. It has decreased. This data covers the past 10 years and, as a result, shows the significant changes the market is currently experiencing.
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Since interest rates are the hottest topic on Wall Street, MS also commented on expectations for interest rates. At the start of September, the central bank assumed that the market expected a 100 basis point rate cut by the end of 2024. The bank said it believes “this appears to be aggressive unless the US economy has a hard landing, but this is not our base case.” Although a 50 basis point rate cut in September was averted, the market has an 85.5% probability of a 25 basis point rate cut at each of the November and December Fed meetings, and an 85.5% probability of a rate cut at each of the November and December Fed meetings, according to the CME Federal Watch tool. %, these predictions have not changed. 82.1% each. These pullbacks reflect the direction of the market, as the S&P’s 12-month total return was 30% when economic activity, as measured by the ISM Manufacturing Index, hovered around 67% in 2010, according to MS data. It is important in determining gender.
Shifting gears to the October report, MS notes that stocks have historically outperformed following the Fed’s first rate cut, rising valuations, and “consensus forecasts for EPS to accelerate rather than decline; “The upside for stocks after a rate cut could prove to be more limited this cycle.” However, the key stock market insight from the bank’s October report comes through its comments on cyclical stocks. MS shares that as the upward surprise in economic growth weakened from April to August, “sector and factor trends became more defensive, consistent with the slowdown in economic growth.” However, as the Citi Global Economic Surprise Index shows, this may no longer be the case. MS outlines that the index bottomed out at around -25 in August and rose to around -12 in September. This trend is reflected in the difference between cyclical and defensive sectors globally, with the measure rising as economic surprises surged.
Goldman Sachs believes that stock price quality is determined by economic growth and economic interest rates, so these factors are important when analyzing Goldman Sachs’ list of stocks with the highest expected ROE. . The bank recently raised its S&P 2024 closing price target to 6,000 points. This is the fourth revision to the target and is a significant increase from the previous estimate of 5,600 points. The rise was accompanied by optimism about the index’s returns. GS now expects S&P’s 2025 earnings to remain at $268, a 4.7% revision from its previous forecast of $256. However, the 2024 forecast remains unchanged, and its value of $241 means next year’s revenue will increase by 11.2%.
For the next 12 months, GS believes the S&P will remain at 6,300 points, representing 8.9% growth compared to its recent value of 5,779 points. MS data points to an increase in unexpected EPS as inflation is subdued, a view echoed by Goldman. The bank’s chief U.S. equity strategist, David Kostin, said the upward revision to EPS comes as “the macro environment remains conducive to modest earnings growth, with prices being charged above input cost growth.” This is because they share that it reflects the facts. “Over the past year, the performance of several quality factors has followed the broad trajectory of market views on growth and monetary policy,” the analyst outlined in a later note. “The market is likely to underestimate the probability of a significant weakening in the labor market, so strong employment trends may encourage some investors to move away from expensive ‘blue chip’ stocks to less popular lower priced stocks,” Kostin said. There is a possibility that they will switch to a quality company.”
our methodology
To create a list of Goldman Sachs stocks with the highest consensus ROE, we used the bank’s most recent 50-stock list and selected stocks with a consensus ROE of 5% or higher.
We also mentioned the number of hedge fund investors in these stocks. Why are we interested in stocks that hedge funds invest in? The reason is simple. Our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming the benchmark by 150 points. (Click here for details).
Senior manager studying market indexes with a team of young stock market analysts.
Citizen Financial Group, Inc. (NYSE:CFG)
Consensus ROE: 14%
Number of hedge fund investors in Q2 2024: 47
Citizens Financial Group, Inc. (NYSE:CFG) is a consumer and commercial banking company based in Rhode Island. The company also has a private banking division and a highly diversified loan portfolio. This diversification is especially important in the event of an economic downturn, when bank stocks are stressed due to the increased likelihood of default. As of the second quarter of 2024, 20% of Citizens Financial Group’s (NYSE:CFG) loan portfolio was made up of commercial real estate, which is subject to large-scale defaults in today’s high interest rate environment. means exposure to difficult sectors. Time was limited. The main risk factor for the bank is its $1 billion in education loans, which could pose a problem if the U.S. government succeeds in the Biden administration’s loan forgiveness efforts. Meanwhile, 21% of Citizens Financial Group’s (NYSE:CFG) deposits are non-interest-bearing demand deposits, allowing it to remain nimble and keep costs down at a time when other companies are struggling with high interest rates. can be suppressed.
Citizens Financial Group (NYSE:CFG) is focused on growth through its private banking division. Here’s what management shared during the Q2 2024 earnings call:
“Finally, we are building a first-class private bank that is doing very well and gaining momentum.
We are growing our customer base and currently have approximately $4 billion in attractive deposits, an increase of $1.6 billion from the prior quarter, and approximately 30% are non-interest bearing. Additionally, our lending volume currently stands at $1.4 billion and continues to grow. The firm recently opened private banking offices in Mill Valley, California and Palm Beach, Florida, and opportunistically added talent to strengthen its banking and asset management capabilities with Citizen Wealth Management at the center of its efforts. I’m doing it. In the second quarter, we added two great wealth management teams in San Francisco and Boston, bringing the private bank’s total assets under management to $3.6 billion and putting us on track to reach our goal of $10 billion by the end of 2025. It’s progressing. Our private bank revenue increased 68% in the second quarter to approximately $30 million, and we are on track to break even later this year. ”
According to Goldman Sachs, Composite CFG ranks 24th on the list of stocks with the highest consensus ROE. While we acknowledge CFG’s potential as an investment, we believe some AI stocks are more likely to deliver higher returns and do so in a shorter time frame. If you’re looking for AI stocks with more promise than CFG, but trading at less than 5x earnings, check out our report on the cheapest AI stocks.
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Disclosure: None. This article originally appeared on Insider Monkey.
